Is it economically reasonable to invest in

Bitcoin and should your company still do

it?
Executive Summary

The topic of this business report is about investing in Bitcoin and cryptocurrencies in general.
It will examine if it is still economically reasonable to invest in Bitcoin. More precisely, it will
look at Bitcoins past developments and possible future prospects. Further, it characterises
advantages that come along with an investment, but also demonstrates which downsides
and risks may appear. This business report is for companies who are searching for
alternative investments and additional options of portfolio diversification. Additionally, it could
be useful for an enterprise to hedge themselves against hyperinflation in post-corona times.

To answer this leading question, several developments and influences had been looked at
and figures have been analysed.

Since the invention of the internet, cryptocurrencies, especially Bitcoin have been one of the
biggest innovations, that came along with it. When considering an investment, it is important
to understand how Bitcoin and the blockchain technology work. Basically, all transactions are
written down in ledgers, which are called blocks in the Bitcoin universe. Then, these blocks
get connected through hashes and build up a long blockchain. These hashes are crucial for
the method proof-of-work. With this procedure, by solving mathematical problems with
computational power, blocks and their included transactions are validated. This decentralized
network makes Bitcoin a sovereign system of digital money, with no dependence of financial
institutions. The cryptocurrency, therefore, offers many advantages compared to out generic
fiat money. For example, with bitcoin there are no money transfer limits, no high transaction
fees for international transfers and it is deflationary, as it is limited to 21 million coins.
Moreover, Bitcoin gets increasingly implemented in our daily life, which makes a long-term
investment even more interesting.

On the other side, it is important to be aware of possible risks that come along with an
investment. Indeed, Bitcoin is a very volatile asset class, which even increases the risk of
huge potential losses. Besides, cryptocurrencies are likely to face regulations from some
states in the future. Due to the decentralized system, governmental institutions do not have
any influence on it, which makes them afraid of losing control. Another potential risk
represents the fear of rising transactions costs in future time, due to scaling issues. This
problem could cause Bitcoin its competitiveness, compared to other financial transaction
providers, like Visa and MasterCard. But most importantly, it is necessary to be aware of
bitcoins devastating impact on the environment. Regardless of any profitability, considering
the high energy consumption that the bitcoin network is responsible for, it is indeed bad for
our climate. Without any doubt, this development is detrimental for humankind’s current way
towards more sustainability and needs to be regarded, when considering an investment.

In order to identify how the advantages and disadvantages influence bitcoins price, data and
information are provided for both, upsides, and downsides. This evidence helps to examine
all different aspects by analysing all figures and hence supports companies making up their
position.

In conclusion it can be said that it is still economically reasonable to invest in Bitcoin.

Considering the listed pros and cons, the advantages outweigh the disadvantages.
Therefore, it might be reasonable for an enterprise to use the cryptocurrency for an asset
diversification, with a total proportion up to 10% of their total invested capital.
Table of contents

Executive Summary................................................................................................................2
Table of contents.....................................................................................................................4
1. Introduction............................................................................................................................5
2. What is Bitcoin and how does it work?.................................................................................6
3. How to invest?........................................................................................................................9
3.1 Indirect Investment...................................................................................................9
3.2 Direct Investment...................................................................................................10
4. Storage of Bitcoins...............................................................................................................11
4.1 Storage on the exchange platform.............................................................................11
4.2 “Hot Wallet”..............................................................................................................11
4.3 Hardware Wallet........................................................................................................12
5. How has the Bitcoin price performed and what are possible future scenarios?...................13
5.1 Past price developments............................................................................................13
5.2 Bitcoins prospects......................................................................................................14
6. How efficient is Bitcoin and what are possible risks?..........................................................18
6.1 Bitcoins energy consumption....................................................................................18
6.2 Risks of an investment...............................................................................................20
7. Conclusion: Is Bitcoin a good investment?..........................................................................23
8. Bibliography.........................................................................................................................25
Literature.........................................................................................................................25
Figures and Graphs..........................................................................................................27
9. Affidavit................................................................................................................................28
 1. Introduction

“Hailed by fans as a market-disrupting liberation, and demonised by critics as a dangerous,

volatile creation, bitcoin and other cryptocurrencies are never out of the headlines for long.”
as written by The Times Newspaper (Should You Invest in Bitcoin? - Times Money Mentor,
2021)1, might be a reason to think about crypto currencies.

If you are wondering whether digital currencies, like bitcoins, are a prudent asset group to
invest your money, this report will take a close look at the question: “Is it economically
reasonable to invest in Bitcoin and should your company still do it?”. Consider all facts and
background information to appreciate what bitcoin is and what it is not and how it might be
useful for an enterprise.

To answer this leading question, it is firstly important to understand what bitcoin is and how it
works. Additionally, it is necessary to examine opportunities that come along with an
investment, especially considering future financial systems and markets. But even so, it is
required to be familiarized with current and future risks, that could affect an investment
adversely.

Therefore, the report provides the status quo and current proceedings. Further, it reviews
past developments and outlines which factors affected bitcoin so far and how they impacted
the price of the cryptocurrency. Moreover, a brief insight in a few investments that have
already been made will be given. Also, certain future developments that could appear and
how they would affect bitcoin will be mentioned.

All analysed data will be proven by evidence to help build awareness about this matter.
Therefore, the report really goes in depth about analysing statistics and graphs. Especially,
statistics help to keep a rational view of a certain topic. Hence, they are beneficial for building
an opinion, just by the matter of facts and they are useful to back up current and future
developments. Additionally, the overall perception is supported by combining opinions,
considering opportunities and taking risks seriously. Besides, observing several businesses
and their options for use, is indispensable to observe.

Finally, the leading question will be answered in the conclusion.

The intention of this business report is to give profound insight into bitcoins past
developments and possible future prospects. Subsequently, findings will be analysed, for the
fact of how relevant they might be for an investment.

1
Times Money Mentor. 2021. Should You Invest In Bitcoin? - Times Money Mentor. [online] Available
at: <https://www.thetimes.co.uk/money-mentor/article/invest-bitcoin-cryptocurrencies/> [Accessed 21
April 2021].
 2. What is Bitcoin and how does it work?

Bitcoin is a sovereign system of digital money, with no correlation to a financial institution,

nor is it controlled by any government or centralized entity2. In contrast to normal fiat
currencies (like USD, Euro, Yen, etc.) there is no underlying system, with a bank verifying
transactions. Instead, it is a clever system of decentralized, trust less verifications, based on
some of the math born in cryptography.
Basically, all transactions are written down in ledgers, which are called blocks in the Bitcoin
universe. Then these blocks get connected through hashes and build up a long blockchain.
These hashes are crucial for the method proof-of-work. With this procedure, by solving
mathematical problems with computational power, blocks and their included transactions are
validated. This decentralized network makes Bitcoin a sovereign system of digital money,
with no dependence of financial institutions. Therefrom Bitcoin is like a ledger, and the
history of transactions are the currency.
Bitcoins can be transferred peer-to-peer without underlying banks like in our generic financial
system. The coins are stored in an electronic wallet that can be set up on a smartphone or
laptop. These wallets just belong to the owner and are not retained by a bank on a check
account. Instead, they are stored directly in on the bearer’s personal device. This means
nobody can block, control, or oversee the wallet, unlike traditionally used check accounts.
The independence from a bank is one of the main distinctions to normal fiat currencies.
Thus, your credit institute cannot regulate or interfere your transactions in any way.
So, with bitcoin there are no money transfer limits, and high transaction fees for money
transfers all over the world, due to the decentralized system. Just the bearer himself is in
control of the wallet and responsible for operating it. Basically, just an internet connection is
needed to access the wallet from anywhere. This enables money transfer and transactions
from all over the world.
Another important point to know, is that the total amount of bitcoin is limited to 21 million.
Due to this limitation, the cryptocurrency bitcoin is behaving differently to our generic fiat
currencies. Fiat money is inflationary, which means that central banks, who issue money,
can print more of it to boost the economy. Hence, the value of money decreases by time,
since more of it is circulating in our system. Bitcoin on the other hand is deflationary, which
means that the value of the crypto currency increases over time. This happens consequently,
as the total amount of bitcoin, that can be generated, is limited to 21 million. Being that it
behaves contrary to fiat currencies. If bitcoin were more integrated and considered as an
investment opportunity, the demand would go up. However, the total amount of available
bitcoins would remain the same. By now already over 18 million 3 bitcoins are in circulation,
which currently represent nearly 90% of the total bitcoin amount available. So, if the demand
2
https://www.thebalance.com/how-does-bitcoin-mining-work-5088328#:~:text=introduced%20into
%20circulation.-,How%20Bitcoin%20Mining%20Works,%2C%20the%20term
%20%E2%80%9Cblockchain.%E2%80%9D
3
Blockchain.com. 2021. total-bitcoins. [online] Available at: <https://www.blockchain.com/charts/total-bitcoins>
[Accessed 28 April 2021].
increases in the future the value of the cryptocurrency would rise, as no more bitcoins can be
generated. Different to our typical fiat currencies, since central banks issue more of it.

Figure 1: Bitcoin Monetary Inflation between 2010 and 2060 4

The line chart above illustrates this aforementioned ramification. The red line indicates the
total amount of bitcoins, which will reach its maximum in 2060, with growth already
increasing on a diminishing scale. The black line shows the estimated inflation rate over the
upcoming period. As the data demonstrates, the inflation rate will decline to a minimum in the
next years. According to the data, its monetary inflation rate decreased from around 90%
witch an existence of 2,916 million BTC in 2010 to 4.02% in 2017. By 2062, when it is
supposed to reach the limit of 21 million BTC, the monetary inflation is expected to reach
0.0015% (p.68 Bitcoin – A Brief Analysis of the Advantages and Disadvantages, 2021).
Given that deflationary process, as a result bitcoin could expect a growth of value.
Furthermore, the bitcoin code is open source, which means everybody can review and
appreciate it. This creates transparency in the principle of operation and reduces doubt.

4
Globeco.ro. 2021. Bitcoin – A Brief Analysis of the Advantages and Disadvantages. [online] Available at:
<http://www.globeco.ro/wp-content/uploads/vol/GEO_Vol_5_No_2.pdf#page=63> [Accessed 28 April 2021].
To understand how cryptocurrencies like bitcoin operate it is necessary to take a closer look
into blockchain, which provides the digital platform for bitcoin. Considering this technology, it
is required to look towards miners. Unlike the name suggests, miners are not people who are
working in a mine, instead these people are providing computing power for the decentralized
bitcoin network. In order to process transactions securely miners compete in solving
mathematically complex problems. The miner who successfully solves the problem adds a
block to bitcoins blockchain and receives a reward of bitcoins. This process is called mining,
as it is not only verifying taken transactions, but it is also the only way how new bitcoins are
generated and introduced into circulation. 5 Many miners compete to decode a transaction
block at the same time, but only one of them solves the complex problem and proves a
transaction. The block reward for a successful calculation decreases over time, as it is
halved every 210,000 block, or roughly every 4 years.6 This goes along until 21 million
bitcoins are reached.

Figure 2: Total Circulating Bitcoin 7

The graphic above shows the progression of the total amount of bitcoin circulating. The
horizontal axis indicates the the timeline, from the genesis of the first bitcoin until now. On
the other side, the y-axis represents the total amount of bitcoin in circulation (in millions). As
5
Compare: https://www.thebalance.com/how-does-bitcoin-mining-work-5088328#:~:text=introduced%20into
%20circulation.-,How%20Bitcoin%20Mining%20Works,%2C%20the%20term%20%E2%80%9Cblockchain.
%E2%80%9D
6
Investopedia. 2021. Bitcoin Mining. [online] Available at: <https://www.investopedia.com/terms/b/bitcoin-
mining.asp> [Accessed 20 April 2021].
7
Blockchain.com. 2021. total-bitcoins. [online] Available at: <https://www.blockchain.com/charts/total-bitcoins>
[Accessed 4 May 2021].
seen, the graph is growing on a diminishing scale, which shows that the amount of rewarded
bitcoins is decreasing.
Further, literally everybody can operate as a miner by providing computational power and
validating transactions between wallets. For that reason, this technology is decentralized and
sovereign from centralized entities.
But why should miner provide their computational power in the future, when the rewards are
decreasing, and the maximum amount of bitcoin is reached soon? That being the case,
miners not only depend on decoding blocks, but there is also another source of income to
seize. It is possible to demand fees for processed transactions. Even if they cannot earn
bitcoins for decoding blocks in the future, there is an opportunity to focus on processing
transactions and getting a pay-out for this service. All processed transactions are stored in a
ledger with the transferred amount and the wallet identification number. Although the ledger
tracks all information, transactions are anonymous, as only the wallet number is visible to
others. No one can identify which identification number belongs to a certain person. Virtually,
therefore paying with bitcoin is anonymous, like paying with cash8. Although this case only
was relevant in the first years of bitcoins evolution. Nowadays most crypto exchanges are
required to conduct an identification check, when creating an account. This measure was
taken by most governments to prevent users from illegal activities.

3. How to invest?

Buying bitcoin is not as hard as it seems. These days it is not required to be a crypto or
computer freak to purchase and trade bitcoin. Regardless the easy process of buying bitcoin,
crypto currencies are still speculative and quite volatile. Hence, it is advised to only purchase
bitcoin, when acquainted with the matter.
There are several possible ways to invest in bitcoin, distinguished in direct and indirect
investments.

3.1 Indirect Investment

Considering indirect investments, investors can purchase stocks of certain companies, that
are related to bitcoin. These companies, like Tesla or MicroStrategy are affiliated with bitcoin,
due to their massive investments in the cryptocurrency. Based on that huge investment, they
benefit when bitcoin price rises, as their own stock tend to increase in value as well. Further
there is an option investing in bitcoin over ETNs (Exchange-Traded-Notes). These
8
Js.ugd.edu.mk. 2021. View of CRYPTOCURRENCIES – ADVANTAGES AND DISADVANTAGES. [online]
Available at: <https://js.ugd.edu.mk/index.php/JE/article/view/1933/1706> [Accessed 28 April
2021].
“exchange-traded notes” are types of unsecured debt securities, that track an underlying
index of securities and trade on a major exchange like a stock” (How Exchange-Traded
Notes (ETN) Work and the Risks to Investors, 2021)9. Accordingly, Bitcoin-ETNs represent
the cryptocurrencies value, by tracking it as their underlying index of security. ETNs have a
security identification number, therefore they are tradeable on an exchange. Given that, it is
possible to purchase them over an online broker, just like normal stocks. Consequently, the
ETN provider will then invest the money directly into bitcoin, which then represents the price
of it.
Hence, the advantage of this indirect investment method is the convenient process of buying
it. Inasmuch as there is no need of creating a wallet and an account on a crypto exchange
platform. However, it must be considered that the ETN provider raises transactions fees and
annual dues for that convenience. Besides a common idiom says: “Not your key, not your
coins!”, this means the buyer does not own these purchased bitcoins, whilst buying them
over an exchange-traded note. Therefore, the investor cannot command about the
purchased cryptocurrency or even use it for other purposes than a pure investment. Due to
that matter, it makes more sense for a company to invest directly.

3.2 Direct Investment

Considering a direct investment in bitcoin, the buyer bears the full responsibility for managing
the cryptocurrency. Referring to this full responsibility, it is also the biggest advantage, as the
bearer gets full control over his purchase. Moreover, it is the cheaper option compared to an
indirect investment, due to fewer transaction and management fees. On the other hand, the
downsides are that the purchaser is 100% responsible for his wallet key. Losing this key
implies the loss of all bitcoins bought. Without the key nobody can access the wallet and it is
impossible to restore it.
After deciding on a direct investment, it is necessary to create an account at a cryptocurrency
exchange, where you can change fiat money into bitcoin or other digital currencies. There
are several different crypto-exchanges available, and the numbers are increasing. An
example for a crypto exchange is bison. It is a German crypto exchange powered by “Börse
Stuttgart”. Bison operates by an app and ensures the storage of purchased bitcoins.10 Due to
the fact that they operate in Germany, it might be reasonable for a German firm to buy there.
Albeit the presented possibility to just invest over a smartphone app could be questionable
for an enterprise. Indeed, there are plenty of international crypto exchanges as well. Most
popular are crypto exchanges like Kraken, Binance and Coinbase. These platforms might be
more convenient for bigger investments, as they do not only offer purchases through an app.
Moreover, there is an option to invest over a decentralized crypto exchange platform called
Bisq, in case secured privacy is the highest issue for a company. Bisq operates completely

9
Investopedia. 2021. How Exchange-Traded Notes (ETN) Work and the Risks to Investors. [online]
Available at: <https://www.investopedia.com/terms/e/etn.asp> [Accessed 23 April 2021].
10
BISON App. 2021. Bitcoin & Co kaufen & verkaufen | ◥ BISON ◤ App der Börse Stuttgart. [online]
Available at: <https://bisonapp.com/> [Accessed 23 April 2021].
anonymously, compared to other competitors, where it is necessary to identify the account to
purchase cryptocurrencies. On the other hand, Bisq operates over the Thor browser, also
regarded as “dark net”, which is a decentralized network with secured privacy. As it is
required to access over the “dark net”, there is a need of special knowledge. Besides, the
platform only offers small amount purchases compared to other generic exchanges.
All platforms operate basically the same. First it is necessary to transfer money to the crypto
exchange account, where it is then possible to exchange it for bitcoins. Usually there is a
small transaction fee, which occurs in a relatively high spread between the buy and sell
market price. The spread is normally around 0,75%. Given these points, this platform might
be an option considering shady business dealings, but not for rational investments. 11

4. Storage of Bitcoins

4.1 Storage on the exchange platform

There are three options for safe keeping of purchased Bitcoins. Option 1: it is possible to
store the bought Bitcoins directly on the exchange platform, without the need of any further
actions. The platform provider will then assume the storage. Speaking for the advantages,
with this option, there is no need to create an own wallet where the crypto coins are stored.
Although it is not recommended, referring to the quote which implies, “Not your key, not your
coins!” saving the crypto currency directly on the platform makes the provider responsible for
preserving it. Consequently, it is not possible to use and pay with the currency. Therefore, it
is highly recommended to store bitcoin in a self-created wallet.

4.2 “Hot Wallet”

Option 2 is storing bitcoin in a self-created so called “hot wallet”, that is accessible over the
internet. Given that it operates online, it is possible to access and use it from various places.
Therefore, it is necessary to install an app on a smartphone or a software on a computer.
The most known hot wallet is the system software EXODUS, which is a multi-currency wallet
that supports hundreds of cryptocurrencies12. Comparing both opportunities, it is saver to use
the app on android or iOS. As these mobile systems are more secure and harder to hack
compared to computer software systems like windows. After installing the program, the buyer
can transfer the bought bitcoins to the created wallet. This process takes just a few minutes
and is free of charge. After the transaction, the wallet owner is fully in charge of the
purchased bitcoins. It is now possible to use the cryptocurrency for online payments and not
just as an investment. While creating the wallet, the software issues a cryptic phrase with 12

11
Finanzfluss, 2021. Wie kann man in Bitcoin investieren? | Finanzfluss. [video] Available at:
<https://www.youtube.com/watch?v=5nD-C7NL0PE&list=WL&index=6> [Accessed 24 April 2021].
12
Techradar.com. 2021. Best Bitcoin wallets in 2021 | TechRadar. [online] Available at:
<https://www.techradar.com/news/best-bitcoin-wallets> [Accessed 10 May 2021].
to 24 random words. This represents an individual safety phrase, which operates as a
password to access the wallet from other devices. This cryptic phrase should be secured, as
it is the only possibility to restore the wallet, when the operating device gets broken. Thus,
losing the phrase goes along with losing the wallet.

4.3 Hardware Wallet

Option 3, marking the most secured way of storing bitcoin, is a hardware wallet. Considering
this alternative, the cryptocurrency is stored offline on a device so called ledger, which looks
like an USB-Stick. Since the coins are stored offline it makes them secured in case of a
cyber-attack. Therefore, it is recommended for companies when buying bigger amounts of
Bitcoin. Similar to a hot wallet, it is possible to retrieve the date if the device gets destroyed.
Additionally, there is a cryptic safety phrase to access and retrieve the wallet from a new
ledger. Further, it is important to buy the ledger directly over an official supplier or retailer and
not third party, to prevent the risk of preinstalled software, as this software could harm the
hardware wallet or copy the safety phrase, enabling hackers’ access to the ledger. Despite
this preventable threat a cold wallet is the most secured way of storing Bitcoins and quite
affordable with a price between €50-120. 13

13
Finanzfluss, 2021. Wie kann man in Bitcoin investieren? | Finanzfluss. [video] Available at:
<https://www.youtube.com/watch?v=5nD-C7NL0PE&list=WL&index=6> [Accessed 24 April 2021].
 5. How has the Bitcoin price performed and what are possible
future scenarios?

5.1 Past price developments

Since the creation of the first 50 bitcoins, so-called “Genesis-Block” in 2009, as a result of the
financial crisis in 2007, it took some time for the cryptocurrency to be traded at a stock
exchange. The first trading rate for one bitcoin was 0,07 US-Dollar. Thus, you could buy 13,1
bitcoins for just one dollar at this time. Today these 13,1 bitcoins would worth round about
three-quarters of a million (as of 20.04.2021). This small calculation demonstrates, how
much bitcoins value has skyrocket over the last decade. Especially in the last 3 years, bitcoin
has enjoyed a theatre of dramatic ups and downs. From the start, the bitcoin exchange rate
has faced considerable fluctuations, which have been occurring until this day.
In the following year (2011) the price for a bitcoin was below 10 USD, except for short period
in June. In the end of 2013, bitcoin’s value first soared above 1000 USD, meaning the
cryptocurrency decoupled his value in just two years’ time. Afterwards the exchange rate
declined until it reached its low in 2015, with a value of 250 USD, meaning that it lost 75% of
worth.14

Figure 3:Bitcoin price development (as of April 24, 2021)

15

14
De.wikipedia.org. 2021. Bitcoin – Wikipedia. [online] Available at:
<https://de.wikipedia.org/wiki/Bitcoin> [Accessed 17 April 2021].
15
Chart: Der Aktionär, 2021. Bitcoin Kursverlauf. [image] Available at:
<https://www.deraktionaer.de/aktien/kurse/bitcoin-crypt0000btc.html> [Accessed 24 April 2021].
The graph above presents data regarding the exchange rate of bitcoin, converted in USD,
over the last 5 years. The x axis indicates the timeline since 2016 and the vertical axis shows
the price for one bitcoin in USD. The green and red coloured graph below, at the bottom,
illustrates the Moving Average Convergence Divergence (MACD). The red colour means that
the 12 days price average is lower than the 26 days price average, the green colour indicates
the opposite (GD12 Days > GD26 Days).
As the graph shows, bitcoin skyrocket again in the following two years, stopping just under
the $20,000 mark in December 2017. This period in 2017 indicates the first hype phase, with
bitcoin omnipresent in all headlines. Besides, the cryptocurrency registered its biggest capital
and percentual growth, increasing his value by 5,000%.
After this expansion, the price slumped to a low of 400 dollars and levelled off around a
range between 5k and 10k. In this period, the hype surrounding bitcoin seemed off, until it
started its current rally in December last year. Since then, “bitcoin enjoyed a theatre of
dramatic ups and downs.” (Should You Invest in Bitcoin? - Times Money Mentor, 2021). Mid
December Bitcoin hit $20,000 for the first time. But the upswing was not over, on February 9,
2021, its price soared briefly over $48,000, marking a new all-time high, meaning the
cryptocurrency gained more than $20,000 in the first month of 2021. As a consequence of
being powered by the electric-car producer Tesla, who revealed a $1.5bn investment in
Bitcoin. Then, the value declined for a few days, after the coin jumped to a new record high,
peaking at $58,000 before crashing $14,000 in just two days. Registering a reduction in
value, of almost a quarter in a short period of time. Regardless of dropping that dramatically,
Bitcoin hit a new record high only half a month later at $62,000.
Then the flagship cryptocurrency consolidated for a few days, however new input for the
price was awaiting. “A significant headline came on March 17 when Morgan Stanley became
the first big US bank to offer its wealthier client’s access to bitcoin funds.” (Should You Invest
In Bitcoin? - Times Money Mentor, 2021).16 Despite the fact that customers’ investments in
bitcoin are limited to a maximum of 2.5%, of an investor’s total net worth, this step marks a
significant move towards the acceptance of bitcoin. The acceptance is additionally, fuelled by
Tesla CEO Elon Musk, who announced that customers could buy their Tesla car with the
cryptocurrency, a few days later. These announcements heaved the value to its current all-
time high peaking at $64,748. These days, the exchange rate has plunged over $10,000
again, nevertheless the uptrend is still intact. (As of 24.04.2021)

5.2 Bitcoins prospects

As for a future forecast, the acceptance towards bitcoin, as an asset class is rising, and it
gets increasingly more integrated in our society. For instance, especially in the US it is
already possible to conduct certain payments with Bitcoin, like paying in coffee shops or
restaurants. Moreover, another indicator for mounting acceptance, particularly as an asset
16
Times Money Mentor. 2021. Should You Invest In Bitcoin? - Times Money Mentor. [online] Available
at: <https://www.thetimes.co.uk/money-mentor/article/invest-bitcoin-cryptocurrencies/> [Accessed 21
April 2021].
class, is the decreasing fluctuation, as bitcoin becomes less volatile. Considering a price
prospect, it is quite hard to predict Bitcoin’s future value. However, there are some outcomes
we need to look at. First, it is noticeable that more and more people have become aware of
the matter of cryptocurrencies, especially bitcoin. Through constant input throughout all
channels, people do not want to miss out the current crypto trend, which could enable a new
dynamic in bitcoin purchases. Referring to a phenomenon so called FOMO, the
“fear of missing out”, could trigger a self-fulfilling prophecy. When people see how the bitcoin
value is exploding and therefore tend to invest, it will occur to other people as well. Besides
people are noticing how more and more companies are investing some of their funds into
bitcoin and how the cryptocurrency becoming increasingly integrated in everyday life. All of
these factors could enable a new dynamic, which could boost bitcoins trend sustainably.
Considering a long-term investment method, it is important to base the decision on
fundamental developments and the adaption progress of the technology, and not only on
expectations. An important point for bitcoins price development are large-scale investors.
These companies like Tesla, MicroStrategy and Square, which invested huge funds in
Bitcoin, can positively influence the value. More importantly, they are pushing the
cryptocurrency to more adaptation in our life. In addition, there is important news regarding
the cryptocurrency asset management company Grayscale Investments, who plans to
transform their current Bitcoin Trust into an ETF (Exchange Traded Fund). In that case with
the project’s success, millions of small investors would be able to invest in bitcoin, just by
buying this ETF through their online broker. The obstacle of opening an account on a bitcoin
exchange platform would be gone and massive capital could flow into the bitcoin market.
Referring to these possible developments, asset under management (AUM) would go up
rapidly.
In general, there is growing potential for utilization of bitcoin. Especially companies like Tesla
and PayPal are pushing to more adaptation. For example, Tesla is not only investing in
bitcoin, but they are also enabling payments with bitcoin on their website, to buy their
products. Since other firms are increasingly doing so, they are strengthening the adaption
process. Not only Tesla, but also Elon Musk’s former enterprise PayPal is engaging in the
bitcoin business. Since March 2021, PayPal has not only offered trading bitcoin as a service,
but they have also made it possible to use the cryptocurrency as a payment method. Thus,
customers can now use bitcoin to pay at over 26 million retailers17. A few years ago, bitcoin
was considered as a medium of exchange in the future, but in the past years the status quo
has changed fundamentally. Investors are seeing the cryptocurrency not only as a digital
asset, but even more as a decentralized hedge against financial loss in an ailing financial
system. There is no underlying bank, and it is decentralized, which prevents the digital
currency from being affected in a financial crisis. For that reason, bitcoin is sometimes

17
PayPal Newsroom. 2021. PayPal Launches New Service Enabling Users to Buy, Hold and Sell
Cryptocurrency. [online] Available at: <https://newsroom.paypal-corp.com/2020-10-21-PayPal-
Launches-New-Service-Enabling-Users-to-Buy-Hold-and-Sell-Cryptocurrency> [Accessed 22 April
2021].
considered “digital gold”, but with the advantage, that it can accessed from everywhere over
the world, due to the decentralized system underneath. Therefore, it is not necessary to trust
a bank anymore. People even see it competing with big payment services like Visa and
MasterCard. Regardless all listed facts that could boost bitcoins value, the most important
point regarding long term growth is that the adaptation process will proceed successfully.
The cryptocurrency needs to ripen as a basic asset class, payment method and the network
(log) needs to adjust to a growing demand. In the future, more updates will be necessary to
scale the bitcoin network for a bigger user base. If bitcoin can overcome these challenges, it
could establish itself in our financial system. 18 According to co-founder and former CEO of
crypto exchange BTCC “bitcoin could soar as high as $300,000 in the current bull market
based on its historical patterns.” (Lee, 2021). However, he warned that the bubble could
burst after peaking and the cryptocurrency could see declines for years. “Bitcoin bull market
cycles come every four years, and this is a big one,” said Lee, who is currently the chief
executive of crypto wallet Ballet. “I think it could really go up to over $100,000 this summer.”
19

Additionally, as illustrated in this bar chart, which shows “Bitcoin’s supply distribution entering
2021 – 21 million bitcoins total versus available supply”, more Bitcoins are held by Investors.

Figure 4: Bitcoin's Supply Distribution Entering 2021

20

This bar chart breaks down the number of bitcoins held by investors and traders, compared
to the number of bitcoins that got lost and are going to be mined. The vertical axis presents
the number of bitcoins in millions and the bars are labelled with the percentage share of each

18
https://blockchainwelt.de/bitcoin-prognose/
19
Lee, B., 2021. Bitcoin could surge to $300,000 — but winter could last for years when the bubble
bursts, says crypto entrepreneur. [online] cnbc.com. Available at:
<https://www.cnbc.com/2021/03/22/bitcoin-btc-may-hit-300000-but-bubble-could-burst-after-peak-
bobby-lee.html> [Accessed 22 April 2021].
20
2021. Bitcoin's Supply Distribution Entering in 2021 - 21 million Bitcoins Total versus Available
Supply. URL: https://www.chainalysis.com/ [video] Available at: https://www.youtube.com/watch?
v=6GmQVGdSEaQ&list=WL&index=4 (Minute: 9:02) [Accessed 1 May 2021].
characteristic. Furthermore, on the right side the two bars indicate the distribution, only for
the currently available supply of bitcoins. As the data reflects, nearly 80% of all bitcoins in
circulation are held by investors that aim to use it as a long-term investment. On the other
hand, only 21% are trading with the cryptocurrency, which means that they are focussing on
short term events to make profit. That being the case, only a fifth of bitcoin’s current amount
is still in circulation. This suggests that increasingly more people consider it as an alternative
to fiat currencies and other asset classes. If this trend goes on, there might be less Bitcoin
available when the demand grows in the future. Consequently, hereafter the price could be
influenced by large-scale investors, who would rather focus on long term investments than
short term trades.

Furthermore, it is important to observe how states and central banks are reacting and if they
are implementing measurements to prevent this matter from happening. Nevertheless, due to
the decentralized system, it is nearly impossible to regulate or restrict bitcoin. But a hard line
on the part of the states could affect the price development negatively.
Consequently, predicting a future price is hard to do, as this lies in the future. However,
considering all the listed facts and the increasing adaption of bitcoin, it has gotten harder to
stop the implementation from happening. Therefore, it could be an option to invest a small
amount, up to 5% of a firm’s capital in bitcoin. It that case, the company could diversify their
capital assets and moreover prevent that case of missing out on bitcoins progress.

6. How efficient is Bitcoin and what are possible risks?

6.1 Bitcoins energy consumption

Referring to bitcoin mining and its profitability, in the “early days mining cryptocurrencies
seemed like a no-brainer”. 21 Although, by now mining has become a little bit more
complicated and involved. Not only since the reward decreases over time, but it also gets
harder for miners to compete against each other. Therefore, many miners merged and build
huge arrays to be more competitive and effective. There are several bitcoin mining pools
where small miners can join and participate. These cooperations combine their computing
power, which makes it more likely for them to solve one of these complex math puzzles.
Nowadays, there are massive servers and cloud networks farming bitcoin, which consume
huge amounts of energy. Miners must pay a fee for joining these networks, which reduces
profits for each one of them. Besides, they are paying huge amounts for their setups. For
example, just one graphic card can cost upwards of $1,500, and it is necessary to combine
more of them to be efficient. Additionally, when competing against other miners, especially
for popular cryptocurrencies like Bitcoin or Ethereum, it is required to spend more than
$10,000 on rigs. Further, the costs for building a setup are just a part of the total expenses,
considering that the mining process itself consumes quite a lot of power. Therefore, the
energy needs to be cheap to increase the profit. For that reason, over 60% of all mining
servers are located in China, due to the cheap electricity rate there.22 Moreover, the
profitability is defined by the current price, which is quite volatile. Nonetheless, with bitcoin
hovering above $50,000 it could indeed worth it. Albeit, future impacts, such as the declining
bitcoin reward, could change that.

Regardless of any profitability, considering the high energy consumption that the bitcoin
network is responsible for, it is indeed adverse for our climate. Without any doubt this
development is detrimental for humankind’s current way towards more sustainability.

Regarding this graphic, which provides data concerning the annual energy consumption of
the Bitcoin network, compared to Germanys annual consumption rate over the past years.

21
The Balance. 2021. Is Bitcoin Mining Profitable? [online] Available at:
<https://www.thebalance.com/can-bitcoin-mining-make-a-profit-4157922> [Accessed 27 April 2021].
22
Part 10.08: Kehl, T., 2021. Bitcoin Kritik: 11 Risiken bzw. Probleme von Bitcoin!. [video] Available at:
<https://www.youtube.com/watch?v=xZU0jvp5Ybg&list=WL&index=11> [Accessed 27 April 2021].
 Annual energy
consumption of
Germany

Bitcoins annual energy

consumption

Estimated energy consumption of bitcoin for 2024 (just in china): 297 TWh

Figure 5: Bitcoin's annual energy consumption

23

The y axis indicates total annual energy consumption in terawatt hours and the horizontal
axis shows the timeline of the past 5 years. The thick line represents Germanys annual
energy consumption rate over the last years, which has constantly decreased since 2017, as
the graph indicates. The thinner graph at the bottom represents bitcoins increasing annual
energy consumption, which has risen significantly over the past years. The dashed ellipse
above shows the estimated energy consumption rate of the bitcoin network for 2024,
consumed only on Chinese soil. The data illustrates the rapidly growing energy consumption
of bitcoin for the next years. Considering the fact that this estimated consumption applies
only for energy consumed by the bitcoin network in China, it is demonstrated that the total
amount of consumed energy just by bitcoin might be considerably higher. Comparing these
figures to Germanys data, it is both impressive and alarming, how one digital currency like
bitcoin can consume nearly as much as one of the biggest national economies. Concerning
the global climate crisis, which we inevitable must overcome in the future, it is more than
alarming how much energy this technology consumes. According to a paper by
“Digiconomist” a Bitcoin-Transaction consumes 511 kg CO2 equivalent to the carbon

23
Source: Statista/BDEW, Universität Cambridge/Cambridge Bitcoin Electricity Consumption Index
(found at: Mdr.de. 2021. Mehr als ganz Italien: Stromverbrauch macht Bitcoin zum Klimakiller |
MDR.DE. [online] Available at: <https://www.mdr.de/wissen/stromverbrauch-kryptowaehrung-bitcoin-
100.html#:~:text=Sch%C3%A4tzungsweise%20liegt%20der%20j%C3%A4hrliche
%20Bitcoin,Bruttostromverbrauch%20von%20543%2C6%20Terrawattstunden.> [Accessed 27 April
2021].)
footprint of 1,130,700 VISA transactions or 85,027 hours of watching YouTube. Moreover,
1074kWh electrical energy that equals the power consumption of an average U.S. household
over 36.81 days and 89 grams electronical waste equivalent to the weight of 1.37 'C'-size
batteries (Bitcoin Energy Consumption Index - Digiconomist, 2021) 24 25.
Additionally, it is necessary to include the attrition of electronic devices during the mining
process. For this reason, only China’s Bitcoin blockchain operations could exceed the total
carbon dioxide emissions of Italy or the Czech Republic.26
Thus, it is important to consider the impact of bitcoin mining and the transaction process on
our environment and our ongoing climate goal.

6.2 Risks of an investment

However, before investing in Bitcoin there are several risks to consider. One big threat for the
cryptocurrency appears by certain regulations, which can affect the price.27 Some countries
have already restricted trading with bitcoin, due to the fear of losing leverage on financial
concerns. For example, “the Central Bank of the Republic of Turkey is banning the use of
cryptocurrency for payments throughout the country, becoming the latest country to seek to
impose limits on it. “(Turkey to Ban the Use of Crypto for Payments; Bitcoin Falls - CoinDesk,
2021). 28 That sanction could be used by over states as well, which could tarnish bitcoin as a
digital currency. Governments all over the world argue, that bitcoin enables money
laundering and finance both terrorism and illegal drug dealing activities. Therefore, especially
countries with instable currencies, like Ecuador and Egypt, have restricted the trade as well29.
But these governments must keep in mind, that these illegal activities also happening with
normal fiat currencies. In western countries, a process named KWC “Know-Your-Customer”
should prevent illegal actions, due to the measures that make it necessary for exchange
providers to identify their users, when they create an account. Another risk that occurs is the
geographical consolidation of computing power. As over 60% of bitcoin mining pools are
located in China, due to the cheap electricity prices, the cryptocurrency is dependent on
24
Digiconomist. 2021. Bitcoin Energy Consumption Index - Digiconomist. [online] Available at:
<https://digiconomist.net/bitcoin-energy-consumption> [Accessed 27 April 2021].
25
Assetmanagement in Reinform | Robeco.com. 2021. Einen Bitcoin ausgeben = 330.000
Kreditkartentransaktionen. [online] Available at: <https://www.robeco.com/de/aktuelle-analysen/2019/04/einen-
itcoin-ausgeben-330000-reditkartentransaktionen.html> [Accessed 27 April 2021].
26
Zinner, F., 2021. Mehr als ganz Italien: Stromverbrauch macht Bitcoin zum Klimakiller | MDR.DE. [online]
Mdr.de. Available at: <https://www.mdr.de/wissen/stromverbrauch-kryptowaehrung-bitcoin-
100.html#:~:text=Sch%C3%A4tzungsweise%20liegt%20der%20j%C3%A4hrliche
%20Bitcoin,Bruttostromverbrauch%20von%20543%2C6%20Terrawattstunden.> [Accessed 27 April 2021].
27
Globeco.ro. 2021. Bitcoin – A Brief Analysis of the Advantages and Disadvantages. [online] Available at:
<http://www.globeco.ro/wp-content/uploads/vol/GEO_Vol_5_No_2.pdf#page=63> [Accessed 28 April 2021].
28
CoinDesk. 2021. Turkey to Ban the Use of Crypto for Payments; Bitcoin Falls - CoinDesk. [online] Available
at: <https://www.coindesk.com/turkey-bans-crypto-payments-trading> [Accessed 27 April 2021].
29
Stein, L., 2021. Yahoo is now a part of Verizon Media. [online] Finance.yahoo.com. Available at:
<https://finance.yahoo.com/news/countries-banned-cryptocurrencies-why-210500613.html?
guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAMjTtXAs
ECAqjUpOEWqqOtpzeg2k5QX8pUDqACwG6Wn2dk3e0WAXlTc-
m8eyJbU65vX4dvdt7cahgwXJBvQgV8rwxOqtrv9qbpfEGrbELSMl_5Pn3qZVg8DpeyWrujtydoS7wCkoZLSRr
Jn2Cp1ltVxCddh0vf3fj--gV7iKMPlO> [Accessed 28 April 2021].
China’s government. Governments indeed cannot prohibit and look bitcoins up, but they can
restrict mining or close bitcoin exchanges. Consequently, there would be a huge loss in
computing power. In the short run, it would affect Bitcoin’s price dramatically, but long term
the computing power could be compensated somewhere else. Additionally, there is a risk
due to scaling of the Bitcoin network. A reason for that is rising transaction fees. A block with
transactions has a capacity of approximately 2mb. Therefore, only a limited number of
transactions fit inside a block, which then gets decoded by miners. Hence, users must pay a
transaction fee to provide miners a financial incentive to process their transactions. If the
total amount of transactions rises in the future, due to an increasing demand, higher paid
transaction fees will be preferred. Thus, prices for transactions will go up and it will take
longer time for transaction to be processed.

Figure 6: Fees per transaction development

30

This line chart above depicts the rising transaction fees quite well. As the graph represents
the average transaction fees in USD per transaction (shown on the vertical axis) over the
past years, since the genesis of bitcoin (displayed on the x axis). The shown data
demonstrates the issue of rapidly increasing transaction fees during periods of high demand.
As the graph depicts, both booms of rising transaction fees happened in this time. The first
peak displays the first hype period of bitcoin at the end of 2017. Then, the graph dropped as
the demand for bitcoin decreased in the following years, until it started to skyrocket again at
the end of last year. Therefore, the data illustrates the above-noted risk of increasing
transaction fees, in times of high demand aptly. Bitcoin has already gotten an update for that
reason, so-called lightning network. Albeit scaling bitcoin to a higher volume of trade will
always be an issue. Despite this challenge, it is important to consider that this problem
occurred to the internet before as well. Internet services like YouTube, Email providers or

2021. Average transaction fees in USD per transaction. [image] Available at:

30

<https://www.blockchain.com/charts/fees-usd-per-transaction> [Accessed 28 April 2021].

Netflix have already expanded massively, and solutions have been found. So, it likely will be
the same for cryptocurrencies. 31

7. Conclusion: Is Bitcoin a good investment?

Kehl, T., 2021. Bitcoin Kritik: 11 Risiken bzw. Probleme von Bitcoin!. [video] Available at:
31

<https://www.youtube.com/watch?v=xZU0jvp5Ybg&list=WL&index=11> [Accessed 27 April 2021].

The aim of this present report was to examine if: “it is economically reasonable to invest in
Bitcoin and should your company still do it?”. Since the invention of the internet
cryptocurrencies have been one of the biggest innovations that came along with it. Especially
Bitcoin revolutionized the whole present concept of money. Indeed, the concept behind
bitcoin is not that easy to understand. But once comprehended, the network shows its
potential behind this precept. Summarized the system behind Bitcoin can be considered as
umpteen long lists of transactions. These transactions are gathered in ledgers, which then
get collected in blocks. Linked together they build up a blockchain as a list of records.
Altogether with the proof-of-work method they create a new era of a monetary system.

This report has shown that Bitcoin has already faced some big challenges in the past, like
the bust of some crypto exchanges, fraud trials, cyber-attacks, and scaling problems.
However, the cryptocurrency managed to overcome all of them. Nevertheless, more than
ever bitcoin is still a vibrant and discussed digital currency.

Even though cryptocurrencies like Bitcoin have already powered a shift in mindset towards a
new understanding of currencies, this report has identified that there are still some issues to
declare. When considering an investment, it is important to keep the risks in mind. Since
bitcoin is based on a decentralized network, without any underlying banks or governments,
there is a possibility of upcoming regulations. As shown in the report, some governments
have already restricted the trade of bitcoin and it is not unlikely that more will do so in the
future. Moreover, there might be an upcoming scaling issue, which could cause rising
transaction fees. Thus, bitcoin would not be competitive anymore, compared to other
financial transactions services like Visa or Mastercard.

Besides one of the most significant findings to emerge, is the devastating negative impact on
our environment. As data has demonstrated, cryptocurrencies and the blockchain technology
are affecting our climate in an adverse manner, particularly by consuming massive amounts
of energy. Indeed, this development is detrimental for humankind’s current way towards
more sustainability. Due to this counterproductive massive energy consumption, this
downside could therefore be the biggest disadvantage in the future and can only be
prevented when the shift towards fully renewable energy will be successful. Therefore, when
planning an investment, it is inevitable to consider the listed risks and downsides of bitcoin.

Regardless, the findings of this report also present several reasons and opportunities
endorsing an investment. Although the volatility, as a unit of measurement is still high, it has
decreased massively in the last months. Currently, the price is more and more influenced by
large-scale investors with a long-term approach. Hence, the current boom in price could
indicate a sustainable rise and not just a hype period powered by short term trades like in
2017. Furthermore, compared to other small currencies Bitcoin marks a quite stable option.
Therefore, it is not only an alternative asset class to gold or stocks, but also to our fiat
money. Considering a competition with other cryptocurrencies Bitcoin benefits from its rising
establishment rate, as well at its vibrant brand name. Further, it contributes more than half to
the market capitalisation of all cryptocurrencies combined32. As the findings suggest, the
threshold for Bitcoin purchases diminishes increasingly, as more exchanges being
established, and investment trust offer bitcoin investments.

Concerning all the issues I have talked about, there are still many problems that need to be
resolved. Anyhow, a key policy priority should be to reduce the high energy input for
validating and processing transactions to make Bitcoin more sustainable.

However, considering an investment, in my opinion, the opportunities outweigh the risks.

Indeed, it is not possible to predict future developments. But especially Bitcoin powered a
shift in mindset towards new arising digital currencies, which offer huge potential changes for
our financial system. As a bitcoin investment counteracts hyperinflation and displays only few
correlations to other asset classes, it might be useful to invest 5-10% of your capital assets
into Bitcoin. This proportion offers extra diversity to the companies’ asset portfolio and
moreover operates as an insurance premium.
To summarize, I think it is economically reasonable to invest in bitcoin, especially for
diversification. If you are also convinced, that the general adaption of Bitcoin will increase,
you can still benefit from an investment.

(Data as of April 2021)

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Figures and Graphs

Figure 1: Bitcoin Monetary Inflation between 2010 and 2060: Cf. Dumitrescu, George
Cornel: Bitcoin – A Brief Analysis of the Advantages and Disadvantages, in:
GlobeCo, 2017,
http://www.globeco.ro/wpcontent/uploads/vol/GEO_Vol_5_No_2.pdf#page=63
[Accessed 27.04.2021].

Figure 2: Total Circulating Bitcoin: Blockchain.com. 2021. total-bitcoins. [online] Available at:

<https://www.blockchain.com/charts/total-bitcoins> [Accessed 4 May 2021].

Figure 3: Bitcoin price development (as of April 24, 2021): Der Aktionär, 2021. Bitcoin
Kursverlauf. [image] Available at: <https://www.deraktionaer.de/aktien/kurse/bitcoin-
crypt0000btc.html> [Accessed 24 April 2021].

Figure 4: 2021. Bitcoin's Supply Distribution Entering in 2021 - 21 million Bitcoins Total

versus Available Supply. URL: https://www.chainalysis.com/ [video] Available at:
https://www.youtube.com/watch?v=6GmQVGdSEaQ&list=WL&index=4 (Minute: 9:02)
[Accessed 1 May 2021].

Figure 5: Bitcoins Annual Energy Consumption: Statista/BDEW, Universität

Cambridge/Cambridge Bitcoin Electricity Consumption Index (found at: Mdr.de.
2021. Mehr als ganz Italien: Stromverbrauch macht Bitcoin zum Klimakiller | MDR.DE.
[online] Available at: <https://www.mdr.de/wissen/stromverbrauch-kryptowaehrung-
bitcoin-100.html#:~:text=Sch%C3%A4tzungsweise%20liegt%20der%20j
%C3%A4hrliche%20Bitcoin,Bruttostromverbrauch%20von
%20543%2C6%20Terrawattstunden.> [Accessed 27 April 2021].)

Figure 6: 2021. Average transaction fees in USD per transaction. [image] Available at:
<https://www.blockchain.com/charts/fees-usd-per-transaction> [Accessed 28 April
2021].